King River Digital Assets Opportunities SPC v Salerno [2023] NSWSC 510

Andrew Hales  |  Chris Hey | Isobel Carmody

Key takeout

Persons may be entitled to obtain a stay of court proceedings in favour of arbitration due to the existence of an arbitration agreement that they are not a party to if they are a person ‘claiming through or under a party to the arbitration agreement‘. 

Facts

Salerno was the director of Trigon Trading Pty Ltd (administrators appointed) (Trigon), which specialises in foreign exchange and cryptocurrency.  The plaintiff (King River) had entrusted US$20.4 million to Trigon for trades, which it lost when FTX Trading Limited (FTX) (an international cryptocurrency exchange) collapsed in November 2022.  Trigon went into external administration in December 2022.

Shortly after Trigon went into external administration, King River sought to recover the losses suffered in the FTX collapse from Salerno personally, on the basis that he was a person involved in alleged breaches of the Australian Consumer Law (ACL) by Trigon. 

Salerno sought a stay of the proceedings in favour of arbitration pursuant to the arbitration clause contained in the agreement between Trigon and King River.  Salerno was not a party to the agreement or the arbitration agreement it contained. However, claimed to be a ‘person claiming through or under a party to the arbitration agreement‘ and therefore a person captured by section 2(1) of the Commercial Arbitration Act 2010 (NSW) (CAA) who could seek the proceeding be stayed in favour of arbitration. 

Decision

Person claiming through or under a party to an arbitration agreement

The court awarded the stay sought by Salerno on the basis that:

• section 8(1) of the CAA requires the court to refer parties to arbitration where ‘an action is brought in a matter which is the subject of an arbitration agreement‘ and a ‘party’ requests the referral to arbitration ‘not later than when submitting the party’s first statement on the substance of the dispute‘ unless the arbitration agreement is ‘null and void, inoperative or incapable of being performed‘; and
• Salerno was a ‘person claiming through or under a party to the arbitration agreement‘, and therefore a ‘party’ within the meaning in section 2(1) of the CAA.

The court found that there was an arbitration agreement between Trigon and King River, and the content of the allegations regarding breaches of the ACL by Trigon the subject of the proceeding before the court were matters to which the arbitration agreement applied (due to the breadth of the arbitration agreement).

The reason the court found that Salerno was a ‘person claiming through or under a party to the arbitration agreement‘ was that the defences Salerno raised turned on claims and defences exercisable by a party to the arbitration agreement, being Trigon itself.  In particular, the defence that Salerno would raise is that Trigon did not engage in misleading and deceptive conduct in breach of the ACL and, therefore, Salerno could not be found to have accessorial liability for those alleged breaches.

Accordingly, Salerno was entitled to a stay of the proceedings in favour of arbitration pursuant to the arbitration agreement.

However, this entitlement to obtain a stay of proceedings in favour of arbitration does not mean that the ‘third party’ can be bound by the arbitration agreement and compelled to become a party to the arbitration without their consent.

No third party beneficiary clause

King River sought to argue that the proceedings should not be stayed because the terms of the agreement between it and Trigon included a clause that read as follows:

Clause 5.11 No Third Party Beneficiary

The terms and provisions of this Agreement are intended solely for the benefit of each Party and their respective successors or permitted assigns, and it is not the intention of the Parties to confer third-party beneficiary rights upon any other Person.

King River argued that by this clause the parties had expressly agreed that Salerno would not have the benefit of any aspect of the agreement, including the arbitration agreement.  However, the court considered that Salerno was not seeking a stay by reason of his status as a contracting party (or a successor or assignee of Trigon).

Salerno was entitled to the stay by force of the CAA.